More trustees turn to hedge fund strategies

Date: Monday, September 15, 2008
Author: Jenna Towler, Professional Pensions

Trustees are increasing hedge fund allocations as concern over investment diversification and market risk exposure grows, Hewitt Associates says.

During the last two years Hewitt has advised its clients on 54 hedge fund mandates – which have collectively directed more than $2bn (£1.1bn) in assets under management to various hedge fund strategies.

The consultant has actively encouraged pension schemes to consider the risk/reward benefits of an allocation to hedge funds.

Hewitt hedge fund specialist Peter Hill: "The last 12 months have been challenging for investment managers as macro-economic forecasts have deteriorated, market volatility has picked up, the credit cycle has had a negative impact on economies and technical conditions have exerted significant pressure on the valuation of some assets.

"In this context, our clients are increasingly looking at hedge funds as a way to preserve capital and control their exposure to market volatility while still seeking return. Once again this underlines how such strategies are being viewed in the risk management context, rather than purely as a driver of return, as hedge fund strategies typically have a low correlation to traditional asset classes."

Hill added individual client needs are paramount when considering how to allocate hedge fund strategies and one size does not fit all.

He said: "There simply is not one solution that works for everyone. In all cases, putting a portfolio of managers together requires careful consideration of the clients’ needs, investment managers, any strategy overlap and a sensitivity analysis of all fund combinations."